House passes vote to force China to revalue Yuan...watch out here come prices

Just because somehow it is the Yuan's fault that America has exported its entire manufacturing industry over the past 30 years to lower cost countries, our idiot leaders have decided to take the next big step toward an all out trade war. The House of Idiot Representatives has approved legislation designed to combat the manipulation of currency by China that results in unfavorable trade conditions for the United States. As CNN reports, the legislation, which authorizes the Commerce Department to impose duties on imports from countries with undervalued currencies, passed by a vote of 348 to 79. Somehow, because it was framed as a "jobs issue", everyone in Congress went full retard and confirmed they have not the first clue about how Economics actually works. But yes, please revalue the Yuan: the next thing will be exploding prices at Wal Mart, which have so far successfully masked the fact that the US has been exporting staple product inflation. We wonder how those same "workers" on whose behalf this law was allegedly passed will feel when their bill anywhere is double what it used to be... Not to mention that their currently unemployed status will certainly not have changed.
More from CNN:

"We can talk, or we can act. International trade is a high stakes, cut-throat business, and every time we simply talk, the other side acts, and every time they act, an American loses a job," said Rep. Xavier Becerra, D-California.

China said this year it would allow its currency, the renminbi, to trade in a wider range against the dollar. But the currency, also known as the yuan, has scarcely appreciated since then, inflaming critics who charge the undervalued renminbi helps steal U.S. manufacturing jobs.

The House vote caps years of frustration for lawmakers as the United States has continued to shed manufacturing jobs, and promises of reform from the Chinese have failed to result in policy changes.

The legislation now moves to the Senate. Sen. Charles Schumer, a New York Democrat, says the body will act quickly to move the bill to the president's desk.

"We must take decisive action against China's currency manipulation and other economically injurious behavior," Schumer said on Tuesday, noting that the Senate will take up the issue when it reconvenes later this year.

"China is merely pretending to take significant steps on its currency," Schumer said. "This sucker's game is never going to stop unless we finally call their bluff."

But not every member of Congress is convinced, especially after China raised tariffs on U.S. poultry producers earlier this week and accused them of dumping product into the Chinese market.

Our question is what happens when 1.4 billion Chinese pass legislation that the Fed's QE is currency manipulation as well? Does that particular law go hand in hand with the one that states it is now illegal to hold US treasurys (because, of course, Congress realizes that when the dollar falls in value to the Yuan, all those Chinese-held USTs don't really increase in value...)

Goldman Forecast for 2010 Balance and 2011-2012 Early

Goldman's Investment Strategy Group has just circulated the most bearish 2011 outlook presentation, detailing why the US economy in 2011 will likely stall and post negative growth. As the chart below demonstrates, the current case, where ongoing QE will likely persist through 2011 and even into 2012, and thus make any discussion of raising rates irrelevant (likely forever, as the Fed will not be able to absorb all the excess slack before it is forcefully removed after 2-3 sequential dollar devaluations) lead Goldman to a GDP expectation of well under half of the Fed's greenshooty outlook of 3%.

Here is how Goldman describes the its across the board outlook revision:

• Lower growth: We expect GDP to grow 1.5-2.5% in 2011 (down from 2.5-3.0%). Our view is that the growth baton will be passed successfully from inventories and government spending to consumption and investment so growth should remain positive over the next 12-18 months.
• Higher uncertainty: Our forecast range for GDP is wider (1% instead of 0.5%) at 1.5-2.5%
• Lower rates: We are lowering our long-term rates forecast to 3.0-3.75% by end 2011 (from 3.75-4.25%).

And according to the "Bad Case" which the Fed is about to enact, Goldman sees a fundamental S&P valuation range of 725-800 based on 10-11x multiples:

Insider selling accelerates to 1400 to 1 vs Insider buying

For all those who thought last week's "dramatic" improvement in the ratio of insider selling to buying from 650:1 to "just" 290:1 was a sign things are turning and insiders may soon be selling only 100 or so times more stock per week than buying, we have some bad news. According to Bloomberg, the latest ratio of insider selling to buying was 1,411 to 1. Let us repeat: 1,411 to 1. Needless to say, corporate insiders are totally buying the Fed reflation story, and the economic recovery. Like, totally.

Fed increasing balance sheet by $500 Billion

Fed Will Boost Balance Sheet by $500 Billion: Survey

Published: Monday, 27 Sep 2010 | 7:00 AM ET

Text Size

By: Steve Liesan
Senior Economics Reporter

• The Federal Reserve will boost its balance sheet by about half a trillion dollars over a six-month period beginning in November and keep it inflated for up to a year, according to a survey of leading markets participants by CNBC.

About 70 percent of the 67 respondents, which include economists, strategists and fund managers, believe the Fed will begin quantitative easing again.

Of those, 80 percent believe the Fed will start before the end of this year. November is seen as the most likely month for the Fed to restart asset purchases by 38 percent of those who took the survey, but December was a close second with 32 percent.

“The trigger for the resumption of quantitative easing late this year will be an increase in unemployment back into double-digits,” wrote Mark Zandi, of Moody’s Economy.Com. He thinks the Fed will act in December and ultimately purchase an additional $1 trillion in assets.

The survey is among the first efforts to quantify market expectations for when and by how much the Fed will restart quantitative easing, or asset purchases, as is widely expected. Before the Fed Funds rate was lowered to zero, the Fed futures markets served as a proxy for market expectations for actions by the central bank.

The Fed has made clear that the size of the balance sheet is now a major tool for aiding the economy yet there is no obvious proxy for gauging market sentiment. CNBC will conduct the survey periodically to gauge how market expectations for the Fed change with incoming economic data and statements by Fed officials.

There is a wide range of answers surrounding the key unknown of how much the Fed will buy in assets.The average for the survey put the portfolio at $2.35 trillion by Feb. 1, growing to $2.5 trillion by August 2011. The Fed is expected to remain around that level through November, 2011. The Fed’s portfolio is currently targeted at $2.054 trillion, meaning market participants expect the portfolio to grow an average by about $500 billion by August.

At their September meeting, Fed officials hinted strongly that they would restart asset purchases, saying the Federal Open Market Committee “is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.”

But Fed officials have not so far offered any guidance for how much they would add to the portfolio. The Fed kept its balance sheet at about $800 billion before the financial crisis but raised it by nearly $1.5 trillion through the purchase of treasuries and mortgage-backed securities along with toxic assets it took on its balance sheet through the rescues of AIG [AIG  36.47    1.40  (+3.99%)   ] and Bear Stearns.

The lack of guidance, along with differences over the economic outlook, results in a wide range of estimates from respondents for the size of the balance sheet through November 2011. In fact, 22 percent believe the balance sheet will be smaller by then than it is now, with the low coming in at $1 trillion, meaning a reduction in the portfolio by $1 trillion from the current level of $2 trillion.

Nearly 30 percent think the portfolio will be more than $1 trillion dollars larger, with the high at $4.1 trillion.

“If the Fed pulls the trigger, they will go big,” wrote Stephen Stanley of Pierpont Securities. He sees the balance sheet hitting $3 trillion by August.

Market participants believe the move will help lower interest rates, with 57 percent saying it would be totally or somewhat effective. About 38 percent think it will be ineffective and 6 percent unsure.

David Resler of Nomura Securities said lowering interest is not the principal goal of additional QE. Rather, he said will purchase assets to ward off deflation and boost inflation expectations.

Mark Vitner of Wells Fargo said: “There will only be a modest impact on interest rates… because the move is more widely expected and interest rates are already so low.”

Others were skeptical of the impact. Mark Elenowitz of TriPoint Global Equities wrote that he sees little impact because rates are already low. “My fear is that instead of prompting economic activity through sustained low interest rates, the Fed may provoke a debilitating bout of inflation,’’ he said. Others thought the Fed will have some impact, but at a cost of a very painful exit strategy.

Purchasing assets is just one of the actions the Fed could take. It has also said it could lower the interest rate paid on excess reserves, now at 25 basis points, and can make an even firmer commitment to keep rates low for longer.

© 2010 CNBC.com

EU Stops selling Gold. Gold currently @ $1300

Europe’s central banks have all but halted sales of their gold reserves, ending a run of large disposals each year for more than a decade.

The central banks of the euro zone plus Sweden and Switzerland are bound by the Central Bank Gold Agreement, which caps their collective sales.

In the CBGA’s year to September, which expired on Sunday, the signatories sold 6.2 tonnes, down 96 per cent, according to provisional data.

The sales are the lowest since the agreement was signed in 1999 and well below the peak of 497 tonnes in 2004-05.

The shift away from gold selling comes as European central banks reassess gold amid the financial crisis and Europe’s sovereign debt crisis.

In the 1990s and 2000s, central banks swapped their non- yielding bullion for sovereign debt, which gives a steady annual return. But now, central banks and investors are seeking the security of gold.

The lack of heavy selling is important for gold prices both because a significant source of supply has been withdrawn from the market, and because it has given psychological support to the gold price. On Friday, bullion hit a record of $1,300 an ounce.

“Clearly now it’s a different world; the mentality is completely different,” said Jonathan Spall, director of precious metals sales at Barclays Capital.

European central banks are unlikely to sell much more gold in the new CBGA year, according to a survey by the Financial Times.

Although many central banks declined to detail their sales plans, the responses of some, along with numerous interviews with bankers and consultants, suggest it is unlikely there will be a return to the trend of the past decade, when CBGA signatories sold on average 388 tonnes a year.

The central banks of Sweden, Slovakia, Ireland and Slovenia said they had no plans to sell, while Switzerland reiterated a previous statement to the same effect.

The CBGA was first signed after gold miners protested that central banks’ rush to sell was depressing prices.

In previous years signatories haggled for individual allowances to sell under the CBGA, but the most recent renewal of the agreement in 2009 contained no such quotas, according to Darko Bohnec, vice governor of Slovenia’s central bank.

The Housing Crisis

Why has housing been such a core element in the story of American civilization?
Culturally a decent house has been a symbol of middle-class family life. Practically, it has been a secure shelter for the children, along with access to a good free education. Financially it has been regarded as a safe store of value, a shield against the vagaries of the economy, and a long-term retirement asset. Indeed, for decades, a house has been the largest asset on the balance sheet of the average American family. In recent years, it provided boatloads of money to homeowners through recourse to cash-out refinancing, in effect an equity withdrawal from their once rapidly appreciating home values.

These days the American dream of home ownership has turned into a nightmare for millions of families. They wake every day to the reality of a horrible decline in the value of the home that has meant so much to them. The pressure to meet mortgage payments on homes that have lost value has been especially shocking—and unjust—for the millions of unemployed through no fault of their own. For the baby boomer generation, a home is now seen not as the cornerstone of advancement but a ball and chain, restricting their ability and their mobility to move and seek out a job at another location. They just cannot afford to abandon the equity they have in their homes—and they can't sell in this miserable market.
American homeowners have experienced an unprecedented decline in their equity net of mortgage debt. The seemingly never-ending fall in prices has brought an average decline of at least 30 percent. Furthermore, the country is now going through an unprecedented nationwide slide in sales, despite the fact that long-term mortgage interest rates nationwide plummeted recently to a record low of 4.3 percent before rising slightly. The result is that home occupancy costs for home purchases are now down to roughly 15 percent of family income, dramatically lower than the conventional, affordable figure of 25 percent of family income devoted to home occupancy costs. Yet new home sales, pending home sales, and mortgage applications are down to a 13-year low.
The economics of home ownership could hardly be more disastrously opposite to the expectations of generation after generation. Millions of homes have been foreclosed upon. About 11 million residential properties, or about 23 percent of such properties with mortgages, have mortgage balances that exceed the home's value. Given the total inventory, and the shadow inventory of empty homes, many experts expect prices to fall another 5 to 10 percent. That would bring the decline to 40 percent from peak-to-trough and expose an estimated 40 percent of homeowners to mortgages in excess of the value of their homes.
The growing risk of disappearing equity invites more strategic defaults on mortgages. Homeowners with negative equity are tempted simply to mail in their keys to their friendly lender even if they can afford the mortgage payment. Banks don't want to take the deflated properties onto their books because they will then have to declare a financial loss and still have to worry about maintaining the properties.
Little wonder foreclosure has not been enforced on a quarter of the people who haven't made a single mortgage payment in the last two years. A staggering 8 million home loans are in some state of delinquency, default, or foreclosure. Another 8 million homeowners are estimated to have mortgages representing 95 percent or more of the value of their homes, leaving them with 5 percent or less equity in their homes and thus vulnerable to further price declines. A huge percentage will never be able to catch up on their payment deficits.
The pace of foreclosures was briefly slowed by loan modifications brought on by government programs. Alas, the programs have not been working as hoped. Half of the borrowers have been redefaulting within 12 months, even after monthly payments were cut by as much as 50 percent. The foreclosure pipeline remains completely clogged. As it unclogs, a new wave of homes will come on the market and precipitate additional downward pressure on prices. The number of foreclosed homes put on the market by banks will be a more powerful influence on the further decline of home prices than either consumer demand or interest rates.
A well-balanced housing market has a supply of about five to six months. These days the supply is more than double that, as inventory backlog has surged to about a 12½ months' supply this summer, up from 8.3 months in May. This explains why average sale prices have been declining for so many, many months. The high end of the market, in particular, is under great pressure.
The mortgage market doesn't help. It is virtually on life support from the government, which now guarantees about 95 percent of the mortgage market. The rare conventional lenders are now actually insisting on a substantial down payment and making other more stringent financial requirements. Household formation is also shrinking now, down to an annual rate of about 600,000, compared to net household formation during the bubble years, when it was in excess of a million annually. The most critical factor subduing the demand for housing is that home ownership is no longer seen as the great, long-term buildup in equity value it once was. So it is not too difficult to understand why demand for housing has declined and will not revive anytime soon.
This is a disturbing development for those who believe that housing is going to lead America to an economic recovery, as it did during the Great Depression and then through every recession since. Each time, residential construction preceded the recovery in the larger economy. This time, in the Great Recession, a lead weight on recovery has been the disappearance of some $6 trillion of home equity value, a loss that has had a devastating effect on consumer confidence, retirement savings, and current spending. Every further 1 percent decline in home prices today lowers household wealth by approximately $170 billion. For each dollar lost in housing wealth, the estimate is that consumption is lowered by 5 cents or 5 percent. Add to this the fact that we are building a million-plus fewer homes on an annual basis from the peak years of the housing boom. With five people or more working on each home, we have permanently lost over 5 million jobs in residential construction.
That is why housing was such an important generator of normal economic recoveries. To give this context, residential construction was 6.3 percent of GDP at its recent peak in 2005 and 2006. It has fallen to the level of 2.4 percent this year. This is significant if you recognize that a 3 percent top-to-bottom decline in real GDP constitutes a serious recession.
Government programs to stimulate housing sales have not helped. There have been eight of them. One, which expired most recently (in the spring), was an $8,000 tax credit for housing contracts. All of these have done little more than distort the pattern of housing demand and actually pulled forward hundreds of thousands of units at the expense of future growth.
There is no painless, quick fix for this catastrophe. The more the government tries to paper over the housing crisis, and prevent housing from seeking its own equilibrium value in real terms, the longer it will take to find out what is true market pricing and then be able to grow from there.
The sad fact is that housing problems never left the recession of the last several years and it doesn't look as if they are going to leave anytime soon. The ultimate solution remains the same as the solution to the country's broader economic crisis. That is, getting millions of people back to productive work.

Market surged triple digits on data below.

August Durable Goods come all over the place - total number is a major miss to expectations, but stripping away transportation and aircraft, these beat. As expected, the market will cherry pick what it likes and surges on the news.

• US Durable Goods Orders (Aug) M/M -1.3% vs. Exp. -0.1% (Prev. 0.3%, Rev. to 0.7)
• Durable ex. Transportation (Aug) M/M 2.0% vs. Exp. 1.0% (Prev. -3.8%, Rev. to -2.8)
• Non-def Cap ex. Aircraft (Aug) M/M 4.1% Exp. 3.0% (Prev. -7.2%, Rev. to -5.3)

Perhaps someone should point out to Boeing and all US defense companies that Nondefense aircraft and parts shipments and new orders plunge by -13.5% and -40.2% in August.

Phoenix Capital Research features the free investment newsletter Gains Pains & Capital

 

Americans two primary assets for retirement (stocks and their homes) have both been absolute disasters. Home prices are down 30%, stocks haven’t produced gains in over a decade. Every moron on TV talks about the Dow 10,000 like it’s a miracle. But when you adjust the Dow for inflation, (using the BLS’ ridiculous CPI measure) the Dow is SUB-500 in terms of purchasing power.

Our money system is controlled by an elite banking oligarchy fronted by academics who have never run a business, invented anything, or had any interaction with commerce aside from vying for tenure. Our currency is now worth less than 1/20th of what it was a century ago. And we are ALL in debt up to our eyeballs on a personal, corporate, local, state, and federal level.

Heck, even USA TODAY (not exactly the cutting edge in financial research) notes that in order to pay off our current liabilities, every US family would have to pay $31,000 a year… for 75 YEARS!!!

And we’re talking about an economic recovery?

According to David Rosenberg of Gluskin Sheff:

 

• Wages & salaries are still down 3.7% from the prior peak;
• Corporate profits are still down 20% from the peak;
• Real GDP is still down 1.3% from the peak;
• Industrial production is still down 7.2% from the peak;
• Employment is still down 5.5% from the peak;
• Retail sales are still down 4.5% from the peak;
• Manufacturing orders are still down 22.1% from the peak;
• Manufacturing shipments are still down 12.5% from the peak;
• Exports are still down 9.2% from the peak;
• Housing starts are still down 63.5% from the peak;
• New home sales are still down 68.9% from the peak;
• Existing home sales are still down 41.2% from the peak;
• Non-residential construction is still down 35.7% from the peak.

The American Psychological Association reports that 73% of Americans cite money as a source of significant stress. Personal bankruptcies have fallen 8% month over month from July to August. However, August 2010 bankruptcies are up 6% from August 2009… so much for the recovery.

And yet, despite all of this, assumedly intelligent people write op-ed articles and appear on TV claiming that things are swell in the US, that we’re actually OK and that the recession is over. Some of these people even have advanced degrees or have won international prizes for economics.

Let’s be honest. Forget recessions, forget even Depressions, the US is an empire in decline.

You can literally see it crumbling right in front of you. Just start looking at how people live, eat, and act on a day to day basis. Look at how our Government runs itself, how it manages our affairs, how it spends our tax Dollars. Look at how our justice system works, who it protects and who it punishes.

It’s all out there, right in the open for you to see. You don’t need an expert degree or some kind of advanced education. It’s OBVIOUS to anyone who bothers looking around.

The fact we don’t admit it doesn’t mean it’s not true.

Pension Pulse

Quoted from http://pensionpulse.blogspot.com/:

Pension Pulse

Here’s how it would work. A city, county or state facing insurmountable pension costs would appeal to the Department of Treasury for relief. As a first step, it would have to adopt standard accounting practices to accurately portray its current and expected financial health, including realistic projections of its investment returns and the discount rates on its debt.

Second, the applicant would have to take action to assure it can meet the debt service on its bonds, including placing a permanent cap on its pension liabilities. This means raising the retirement age, increasing employee contributions and preventing employees from manipulating their salaries in the last years before retirement to increase their pensions; it would also mean restructuring the fund’s health-care spending, which has been a significant drain.

Finally, the fund would have to move all new employees to 401(k) retirement plans, which have fixed employer contributions and therefore reduce future taxpayer liabilities.

In exchange, the Treasury would authorize the fund to issue tax-free “pension protection” bonds which, for a fee, would be guaranteed by the federal government. Proceeds from the bond sales would cover its liabilities, providing a quick resolution to the underfunding crisis.

Today’s bond market is the perfect environment in which to introduce a new security like pension-protection bonds. With their tax-free status, a federal guarantee, accurate accounting and the promise of a permanent fix, these securities might even be priced lower than Treasury bills, which are yielding 3.8 percent for 30-year bonds.

Housing Starts Bounce Along Bottom, Hit 598K, Beat Expectation Of 550K As Housing Inventory Surges | zero hedge

 

August Housing Starts come at 598K, on expectations of 550K, as the bounce along the bottom is now nothing but noise. None of this is relevant as the most recent (July) existing home inventory number hit 12.5 months from 8.9 months prior, and even with that in mind, the starts number is the largest since April 2010. Which merely means that even more spare capacity will be added. Of course, with the GMAC Mortgage scandal front and center, this whole statistic may soon be quite irrelevant should foreclosures grind to a halt. Oh, and this being a US Census number, the prior number was obviously revised lower, from 546K to 541K. No surprise there.

Insider Selling Outpaces Buying By Over 290-To-1 In Past Week | zero hedge

According to Bloomberg, for the week ended September 17, corporate insiders bought $1.4MM in shares in a whopping 7 different companies. This was just marginally offset by sales of $441MM in 98 different companies, a ratio of 290 to 1 of stock notional sold to bought. But wait: this is GREAT NEWS: last week the ratio was 650 to 1! So this is a huge improvement and certainly yet another reason for today's rally, even though last week total notional sold was $332 million, or just under 25% lower, and sellers came in well lower at "just" 72. But who needs details when you have the Fed... Certain not retail, which has now pulled money out of domestic stock funds for 19 straight weeks. So for those wondering just who is orchestrating today's move higher, please let us know if you find out.